New tax proposals floated at LA State Capitol
Senator Brett Allain, a Republican from Franklin, has proposed two measures aimed at reforming Louisiana's business tax policies. One of these measures, Senate Bill 4, would eliminate the state's inventory tax credit and reduce or eliminate the corporate income tax for the state's highest-earning companies. The other, Senate Bill 2, would phase out the inventory tax over a five-year period, cap property tax exemptions for certain companies under the Industrial Tax Exemption Program (ITEP), and offer some permanent revisions to the program.
The inventory tax credit, which reimburses businesses for the inventory taxes they pay to local governments, has long been a controversial topic in Louisiana. Some lawmakers argue that the credit is a drain on state finances and allows businesses to shift their tax burdens onto residents and homeowners. Allain has tried in the past to dismantle the inventory tax and credit, but his proposals have not been successful.
Under Senate Bill 4, the state's top corporate income tax bracket would be eliminated, and rates in the first two brackets would be reduced. Currently, the top bracket carries a 7.5% tax on income above $150,000. Allain has said that the bill would be revenue-neutral because it would partially repeal the inventory tax credit to offset the revenue loss. However, the Legislative Fiscal Office is still calculating the fiscal impact of the proposal.
Although the bill would eliminate or reduce corporate income tax for Louisiana's highest-earning companies, some businesses would still be able to claim the inventory tax credit. Sole proprietors, partnerships, and limited liability companies (LLCs) would still be eligible for the credit, which Allain has said is claimed by about 75% of businesses.
Supporters of the proposed reforms argue that eliminating the inventory tax credit would help to make Louisiana more competitive nationally, as the state is one of only 10 that charge an inventory tax and one of only two that offer a credit of this magnitude. However, opponents have raised concerns about how the reforms would impact individual taxpayers and local governments.
Louisiana's corporate income tax generated approximately $567 million in net revenue in the 2020-2021 fiscal year, but it is unclear how much of that might be lost if the top bracket is eliminated. This estimate is particularly difficult because the state's current corporate income tax brackets and rates are only a year old.
If Senate Bill 4 fails to gain momentum, Allain has a backup proposal in Senate Bill 2. This bill would phase out the inventory tax over five years and cap property tax exemptions for certain companies under the ITEP program. It would also offer some permanent revisions to the program, which currently offers property tax exemptions for up to 80% for 10 years. Allain's bill would cap exemptions at 60% for local school board property taxes and 80% for all other property taxes.
Phasing out the inventory tax would indirectly phase out the inventory tax credit without leaving businesses to cover their local tax bills. However, getting rid of inventory taxes would deprive local governments of a significant source of revenue. Allain's bill attempts to lessen the impact on local governments by offering a permanent version of some of the 2016 ITEP reforms that added local control to the approval process. However, critics have argued that the bill fails to retain the most important aspects of these reforms.
Overall, the proposed tax reforms in Louisiana have sparked debate among lawmakers, budget watchdogs, and advocacy groups. While some believe that the reforms would make Louisiana more competitive nationally, others have expressed concern about how the proposals would impact individual taxpayers and local governments. The fate of the proposed reforms remains to be seen, as legislators continue to weigh their options.